Freedom Partners

This article is part of the Center for Media & Democracy's spotlight on front groups and corporate spin.

Freedom Partners, formally known as the Freedom Partners Chamber of Commerce (and previously the Association for American Innovation), describes itself as a "nonprofit, nonpartisan, 501(c)(6) chamber of commerce that promotes the benefits of free markets and a free society."[1]Koch Industries issued a press release stating that Freedom Partners is legally separate from the corporation, but Freedom Partners is controlled by Koch loyalists.[2]Politico describes the group as "the Koch brothers' secret bank."[3][4] Additionally, a document discovered after the winter 2014 donor meeting revealed extensive one-on-one meetings between donors and "representatives of the political, corporate, and philanthropic wings of Kochworld."[5]

Raising $256 million during the 2012 election cycle, it served as a "de facto bank" in the Koch network by "feeding money to groups downstream."[6] It is run by former top AFP strategist Alan Cobb and wages "a behind-the-scenes push in state capitols for reforms consistent with the brothers’ small-government, free-enterprise philosophy, including possibly curbing union power and abolishing income taxes."[7]

The Association for American Innovation was chartered as a Delaware corporation on November 2, 2011, according to Bizpedia.[8]

2016 Election Activity

Freedom Partners Action Fund

In 2016, Freedom Partners has used the Freedom Partners Action Fund (FPAF) to support candidates across the country who "promote free markets and a free society."[9] Here are the the candidates who received financial support from FPAF in the 2016 election cycle:

Rep. Todd Young (R-IN) received $1 million in support of his race for U.S. Senate from the Freedom Partners Action Fund in the form of TV and digital attack ads on former Sen. Evan Bayh (D).[10]

Funding

According to a 2015 year-end FEC filing, Freedom Partners Action Fund raised $11.8 million in 2015 and now have $14.8 million available to spend on elections in 2016.[47] Those who contributed over $1 million to the Freedom Partners Action Fund in 2015 are:

Summer 2015

The Koch network held its 2015 summer meeting July 31-August 2 at the St. Regis Monarch Beach luxury resort in Dana Point, California. According to Politico, about 450 donors attended. Attendees included several Republican candidates for President: former Florida Governor Jeb Bush, Texas Senator Ted Cruz, former CEO of Hewlett-PackardCarly Fiorina, Florida Senator Marco Rubio, and Wisconsin Governor Scott Walker.[50]

Politico also reported that several elected officials in attendance spoke about the influence of the Koch's donor network. Arizona Governor Doug Ducey "recalled that he attended a previous conference as a donor before being elected to his state’s top office last year. 'Every time I’ve been invited to this conference, I’ve benefited from this conference,' he said." Senators Ben Sasse (R-NE), Tim Scott (R-SC), and Dan Sullivan (R-AK), all first elected in 2014, "credited Koch network donors for helping the GOP take control of the Senate that year. 'Your help over the last election cycle produced the numbers that we have today,. Scott said [...] 'The major contributions and investments that you have made have played a major role."

Politico also reported that New York hedge fund tycoon Robert Mercer was a Koch network donor.[50]

Winter 2015

Freedom Partners sponsored the Koch network's winter donor meeting the weekend of January 23, 2015 at a hotel in Palm Springs, California. Sources told Politico that Republican politicians including "Sens. Ted Cruz of Texas, Rand Paul of Kentucky and Marco Rubio of Florida, and Gov. Scott Walker of Wisconsin received coveted invitations to speak to the vaunted network assembled by the billionaire industrialist megadonors Charles and David Koch."[53] Walker's plans to attend were confirmed by a campaign spokesperson.[54]

At the meeting, it was revealed that the network planned to spend $889 million on the 2016 election campaign, a goal the New York Times called "unprecedented" and which "would put it on track to spend nearly as much as the campaigns of each party’s presidential nominee."[55]

“It’s no wonder the candidates show up when the Koch brothers call,” said David Axelrod, a former senior adviser to Mr. Obama. “That’s exponentially more money than any party organization will spend. In many ways, they have superseded the party.”[55]

2014 Election Activity

The 2014 midterm elections were remarkable for the increasingly important role of campaign spending by outside groups.[56] Freedom Partners worked "in tandem" with Americans for Prosperity (AFP), together spending around $100 million on midterm races, according to the National Journal.[57] While AFP spent significant amounts early on in 2013, Freedom Partners ramped up its spending on ads later in the race. "Freedom Partners Action Fund, a super PAC, is slated to spend $25 million by the time the cycle finishes, said spokesman Bill Riggs, including the $2.1 million it has reserved for the runoff Senate race in Louisiana," the National Journal reported.[57] By the end of the election cycle, Freedom Partners had spent more than American Crossroads, the New York Times reported..[58]

According to the Washington Post, unlike the 2012 election, when Freedom Partners raised $256 million from unknown donors and then funneled that money through a complex maze of LLCs and nonprofits, this election cycle Freedom Partners "is bringing in-house many of the functions it financed through other groups in the last campaign."[59] The Post reports that, "The organization’s elevated role speaks to how the Kochs are exerting more control over the political activity they fund, a strategy that provides more accountability to fellow conservative donors who want to know how their money is being spent."

In an interview with Yahoo News, Freedom Partners spokesman James Davis said, “We’ve expanded quite a bit. I think it’s just an evolution and growth of Freedom Partners, and we’ll continue to grow.” He added that Freedom Partners was planning to play more of a role in the 2014 elections after the April advertising campaign against Democratic Senate candidates.[60] Freedom Partners spent $2 million on ads against Democratic Senate candidates in April 2014 and has doubled its staff to over 100 employees since late 2013. Spokesman James Davis explained that "We’re really looking long term — beyond any given election cycle."[61]

Freedom Partners Action Fund

As of October 2014, the Freedom Partners Action Fund PAC had "raised nearly $21 million to help Republicans in midterm races," USA Today reported, the sum of just 39 contributions. That included contributions of $4 million from the Kochs, made through two trusts, and $1 million each from "Paul Foster, the billionaire executive chairman of Texas-based Western Refining; Arkansas-based poultry producer Mountaire; and a trust controlled by Roger Stone, the CEO of an Illinois packaging company." By October the PAC had already spent around $15 million, and announced plans to spend an additional $6.5 million on TV ads in battleground states with key Senate races, including Colorado, Iowa, New Hampshire, Alaska, North Carolina, and Arkansas.[62]

2014 Initiatives

Freedom Partners Action Fund

In June 2014, the Koch brothers' annual summer summit was held behind closed doors at the St. Regis Monarch Beach Resort in Dana Point, near San Diego, California. The event was coordinated by Freedom Partners and, according to one source, was attended by "300 individuals - worth at least a billion each."[64] During the summit, the creation of a super PAC called Freedom Partners Action Fund was announced. Politico reported that "The new group aims to spend more than $15 million in the 2014 midterm campaigns — part of a much larger spending effort expected to total $290 million." According to Koch operative Marc Short, "The Freedom Partners Action Fund will support candidates who share our vision of free markets and a free society and oppose candidates who support intrusive government policies that push the American Dream out of reach for the American people."[65]

Politico described the creation of the super PAC as "an evolution" for the Koch brothers, whose network of organizations has previously focused mainly on attacking politicians and policies they opposed, rather than supporting candidates.[65] In previous election cycles, the network has relied on 501(c)(3) and 501(c)(4) non-profits, as well as trade associations, organized under 501(c)(6) of the IRS code, none of which is required to disclose the names of their donors. According to The New York Times, :"Strategists working with the Kochs concluded that the approach, while preserving the secrecy of donors, limited the political impact of the groups’ efforts. With the Kochs already the subject of aggressive and personal attacks by Democrats, and after reports that revealed the names of many of the wealthy donors working with them, Freedom Partners concluded that the flexibility afford [sic] by the super PAC was worth the headaches that increased disclosure may bring, according to a person who attended the group’s most recent conference, held earlier this week."[66]

Invited Freedom Partners members to join an upcoming conference call about a “significant new Freedom Partners initiative” which he touted as one that would “drive the national narrative around energy and the tremendous benefits of reliable affordable energy for all Americans, especially for the less fortunate.” The email indicated that discussions about the energy project began last summer at another Koch donor event in New Mexico, which drew outgoing House Majority Leader Eric Cantor and Rep. Paul Ryan among others.[70]

On its website, Freedom Partners describes the mission of its energy policy as, "Increasing access to the affordable energy that helps societies – businesses, families, and especially the poor – prosper and thrive," and states that,

America’s abundant and affordable supply of energy – and the economic impact it brings – faces many threats. Environmental regulations, an unaccountable federal bureaucracy, activist judges, and the fringe environmental groups are working together to stall the production and use of these vital resources.[71]

Kevin Gentry's email discussed how the energy initiative was launched in response to a plan by liberal donors to spend as much as $100 million to make climate change a top-tier issue in the 2014 election cycle.[72]

Deceitful Campaign Advertising

"Pants on Fire" Attack Ad Against Rep. Bruce Braley

Freedom Partners aired this untruthul attack ad against Rep. Bruce Braley that was rated by fact-checkers as "pants on fire"

On April 8, 2014, Freedom Partners began a $1.1 million advertising campaign against Representative Bruce Braley (D-IA) and Senator Mark Udall (D-CO) that ran for three weeks.[73] The ad claims that Braley took "tens of thousands from his friends in the health insurance industry" and gave them "special favors" by voting for the Affordable Care Act. Fact checkers determined that Braley has received "$20,500 from health insurance sources...about $2,000 for every year he’s served in Congress" and total "insurance donations account for less than 1 percent of all the cash Braley has raised during his political career."[74] Norman Ornstein, a congressional scholar at the conservative American Enterprise Institute, explained that Braley’s past promises and pressure from his party are likely to have outweighed any campaign donations from the industry. In rating this advertisement's claims as "pants on fire" (the most untruthful rating possible), the fact checkers stated that "It’s ridiculous to suggest that donors who contributed less than 1 percent of his warchest weighed more heavily on his vote than his ideology, his past campaign promises and his partisan affiliation."[75]

501(c)(6) "Business League" Status

Forming the organization as a 501(c)(6) group for purposes of the tax code sets it apart from many of the other notorious and controversial "dark money" groups that were active in the 2010 and 2012 elections. These groups, such as Karl Rove's Crossroads GPS or Americans for Prosperity, are organized as 501(c)(4) "social welfare" nonprofits.[4]

Marc Owens, former director of the IRS tax exempt division, told The Huffington Post, "It's possible that the Kochs think there's less audit exposure with a (c)(6)." But he added, "It's not clear to me what line of business is furthered by an innovation group. That could make it difficult to establish entitlement to (c)(6) status with the IRS."[76]

Much of the law governing both 501(c)(6) and 501(c)(4) groups is the same: political intervention cannot be their primary purpose. But the IRS rules for what constitutes political intervention are rarely enforced.[77] This provides an opening for the Kochs and their allies to continue influencing elections from the shadows.[4]

States like California,[78][79] Montana,[80] and New York[81] have attempted to enforce various state laws. However, another advantage to organizing the Association for American Innovation as a (c)(6), unlike (c)(4)s, is that they will not fall under the charitable trust jurisdiction of state attorneys general.[4]

Scrutiny of (c)(4) groups is likely to heat up from several angles, making a (c)(6) group more attractive. Attorney Greg Colvin, an expert in nonprofit law, told the Center for Media and Democracy, "A (c)(6) is exactly where you'd expect captains of industry to go for political leverage out of the public view, especially if the notorious 501(c)(4) organizations are about to be more heavily scrutinized and regulated by the IRS."[4]

This is especially true after the controversy surrounding the IRS targeting of tea party groups caused Senate Democrats to focus on the vague 501(c)(4) tax laws, which are seen to have contributed to this scandal.[77] As The Huffington Post reported, Senator Max Baucus (D-Mont.) stated in his opening statement to a Senate Finance Committee hearing that, "Once the smoke of the current controversy clears, we need to examine the root of this issue and reform the nation’s vague 501(c)(4) tax laws." He elaborated, "[n]either the tax code nor the complex regulations that govern nonprofits provide clear standards for how much political activity a 501(c)(4) group can undertake. The code does not even provide a clear definition of what qualifies as political activity."[82]

Additionally, the government watchdog group Citizens for Responsibility and Ethics in Washington (CREW) filed a federal lawsuit in May 2013 asking for a judicial order that the IRS initiate a process to bring its rules on 501(c)(4) nonprofits in line with federal law, and this adds to the potential for even more scrutiny of (c)(4) groups.[83]

Contributors and Membership

Freedom Partners boasts that is has over 200 donors, with each one paying at least $100,000 in annual dues, according to POLITICO.[3] Members are drawn from semi-annual conferences hosted by the Koch brothers. Despite Freedom Partners' connection to other Koch family entities, Freedom Partners' President Marc Short claims, "Koch-linked entities provided a 'minority' of the funds" for Freedom Partners in the 2012 fiscal year. Short also noted that "the largest single donor gave about $25 million."[3]

2013

The Freedom Partners' tax returns from the 2012 fiscal year reveal that the organization gave 24 grants to 18 groups (both private and government affiliated) between November 2012 and November 2013. (Freedom Partners 990 Tax Form, 2012) [85]

2012

The $400 million Koch network uses a maze of nonprofit groups and LLCs to conceal donations and campaign activitySource: Robert Maguire with the Center for Responsive Politics. Matea Gold and Cristina Rivero/The Washington Post.

Freedom Partners' tax returns from the 2011 fiscal year reveal that the organization gave money to 30 groups (both private and government affiliated) between November 2011 and November 2012.(Freedom Partners 990 Tax Form, 2011)[85] Freedom Partners, unknown to the public at the time, raised and spent $250 million during the 2012 election cycle, making it the largest financial contributor to right-wing groups in the 2012 election.[3]

As reported by Politico and confirmed by Freedom Partners' IRS filing, recipients of the largest sums included:

Freedom Partners' federal tax returns for 2011 also reveal several entities wholly owned by Freedom Partners. As noted by Lisa Graves of the Center for Media and Democracy, these entities are:

The "American Entrepreneur Fund LLC," which had assets of $885,316 and whose activities are listed as simply as "projects,"

The "American Enterprise Group LLC," which had assets of $424,975 and whose activities are listed as "management,"

The "American Strategies Group LLC," which had assets of $97,714 and whose activities are listed as "public outreach,"

The "MIC LLC," with assets of $25,000 and the job of "research," and

"American Strategic Innovations LLC," with assets of $4,976, the purpose of which was also listed as "research"[98]

Of the groups that received funding, several are, "limited liability corporations that are wholly owned by better-known nonprofits -- what the IRS refers to as "disregarded entities."[99] For example, according to OpenSecretsBlog, Corner Table LLC, Eleventh Edition LLC, and American Commitment LLC -- are all "disregarded entities" wholly owned by the Center to Protect Patient Rights.[99]

Financials

The Koch network was one of the biggest political operations in 2012 and worked largely outside the campaign finance system, raising at least $407 million. Source: Robert Maguire with the Center for Responsive Politics.

Core Financials

2011-2012
Between November 2011 (its creation) and November 2012, Freedom Partners raised $256 million and made grants totaling $236 million.[3]

Opensecrets.org documented that although Freedom Partners reported $0 in political spending in 2012, it gave nearly $60 million to groups that spent almost $180 million on political activity during the 2012 elections.[100]

Overall FEC-reported spending from Nov 2011-Oct 2012: $0

Overall Political Spending of all known grant recipients: $179,210,413